Three reasons why the Digital Economy Bill will damage British biz & what to do about piracy

Part 1 - Three reasons why the Digital Economy Bill will damage British businesses

Part 2 - What can be done? Five steps the UK content industries could take to offset piracy losses

A few weeks ago I chatted with a single dad in his 40s, working in a brewery. He's a biker, Sun-reader and towards the right politically, hating to see his taxes used to fund free school meals or asylum seekers.

Nevertheless, Jack (let's call him) talked with great pride about his downloading habits. He had already seen Shutter Island tho it was yet to hit cinemas. He had hard drives packed with every feature you could imagine and had the unreleased new Matt Damon film torrenting at home while we spoke. When I suggested to him that the film industry was struggling and without people paying for films the good ones might stop being made, he said he couldn't remember the last good film he'd seen, that most of them were terrible with overpaid actors and not worth paying for. When I mentioned the proposed legislation in the Digital Economy Bill he didn't blink - at worst he said he would go back to his former method of having a Love Film subscription and copying every film he received onto a hard disk, and swapping the files with his work mates, who were quick to educate him on the latest software or technique. I asked him if there was a film he downloaded that he really liked, if he would consider paying something after watching it to help the filmmaker make more, and he paused a few moments before diplomatically saying that most people he know would consider that they've already seen it, so what's the point.

This conversation illustrated for me two key points: that there is a good reason for the film industry's concern about downloading; and that the proposed new legislation won't make the slightest difference to Jack and pirates like him. Indeed he looked excited by the challenge of a new cat and mouse race with the powers that be, like being alerted to speed cameras on his sat nav.

Yet, the proposed new Digital Economy Bill will allow any foreign company to block a British website or disconnect a British business, school or family from the web without first having to go to court (and with no penalty if they make a mistake).

There has, however, been much online discussion of the Bill, with some 18,000 letters sent to MPs, with The Register's Andrew Orlowski describing it as 'the political issue for people who don't want to do politics'. He defines the polarised positions of the debate well:

"On the one side is [the] idea that coercion will cause "behaviour change", leading to the public embracing the current set of retail choices. This permits them to apply the might and logic of physical distribution control in a digital world, and avoids embracing structural reform. On the other side is the idea that music just had to be free, just because some people demanded it must be - therefore it had no value... The possibilities that new technology opens all go legal eventually, as black markets go white. To deny this - as both sides do - requires self-interested and incredibly unimaginative arguments. We got no shortage of those."

At this point I would like to state categorically that I am not a 'freetard'. I have pointedly avoided downloading music and films illegally, against the incredulity of many friends and colleagues - in part so that I could one day write this article. I have - I confess, downloaded one episode of Heroes, after my iTunes purchase went thru but didn't download and I couldn't wait to see it, and I also tested the Tribler software after learning it was being used in a major EU-funded project with the BBC, by successfully streaming a Torrent of a Harry Potter film (an activity that combined with an IP Spoofer would be untraceable under the Bill). Beyond that my only torrents are from filmmakers who chose to distribute their work that way as it costs them nothing (unlike the £1.50 or so per download it would cost via Amazon S3 storage).

I am - as I have been since setting up Netribution ten years ago, and trying to map the world of film finance - concerned about the future for indie filmmakers if everyone takes the attitude of Jack. Nevertheless, this rushed Bill as it currently stands would be a disaster if it was ever implemented and I urge you to ask your MPs to give it the debate it deserves - if not to block it altogether. Here's why:

1 - The consequence of site blocking = you can't visit this website

A late amendment to DEB by the Liberal Democrats (as a way to prevent control over Copyright Law being subject to the whims of the Secretary of State at the time) will let any copyright owner ask that a website be blocked from the Internet if there is a 'substantial' amount of infringing content on it. Although the process can be opposed by an ISP and taken to court, if the ISP loses, all legal costs must be met by them so takedown requests would only be refused with the biggest sites such as YouTube or MySpace. With no financial incentive to defend websites, ISPs may start blocking hundreds of thousands of them on demand, regardless of the non-infringing content also hosted there. Writing about 120A on her blog panGloss, Lilian Edwards of the Sheffield Faculty of Law illustrates how obliging ISPs will be:

"In one amusing study , an Oxford team posing as rightsholders asked ISPs to take down a chapter from John Stuart Mill's On Liberty - out of copyright for several centuries. All the ISPs complied without a murmur."

Picture this scenario. Netribution publishes an article with an exclusive that a big movie star punched a TV producer backstage at a London awards ceremony. The studio representing the star submits a site blocking request for Netribution and - given that as a user-generated website, where we do not own the content that has been posted here by our users - our site would get blocked. Most of our photos are publicity stills and posters, yet it would be easy to argue in a court that a substantial proportion of the images on this site were 'infringing' as we've no paper-trail to show these we were assigned a license - and of course Netribution is not worth enough to any ISP for them to consider fighting the studio request in court. So Netribution (and your blog or website) could get blocked as the UK adopts a law that goes one further than the great firewall of China in that it allows foreign companies to decide which websites British people can and cannot access.

2 - The consequences of web disconnection = I can't run my business

I share a nice home with four other creative people. Sometimes they go away for several months and rent their room out - and occasionally these new folk aren't the best sort and leave without paying their bills - it happened last summer. So it's entirely plausible that they could also use our web connection to download. Easily, then, visitors to the house - not to mention my flatmates' partners and close friends - as well as mistaken infringement where a wrong link is clicked or something is downloaded that appeared to be legitimate - could add up to three infringements and we get disconnected from the web indefinitely.

Our flat is packed with legal DVDs (I'm not a BAFTA member), hundreds of CDs and we spend a fortune on trips to the cinema and live music. Yet through an automated process - the mechanisms for which is about to be signed into law - I could suddenly be unable to update this site, check my bank accounts, administer the websites I manage, submit my VAT and tax returns, look for new jobs, promote new films and - well - do my job. Nor would I be able to go to the nearest coffee shop or pub to use their Wifi as no business will be able to risk running free wifi any more. I probably won't even be able to plug my laptop in a paid web cafe via ethernet, as they couldn't risk the chance I was downloading something.

In short my business goes bankrupt, I sign-on yet can't even search the web for jobs, and the British Digital Economy has become one of the least competitive places to do business in the world.

3 - The consequences of Clause 43 = large corporations still can rip off creators

After the sad death of British casting legend Mary Sellway, we were flattered to see the New York Times quote her interview with Tony Pomfrett on Netribution in their obituary. That same week Screen International printed an obituary and reproduced a photo by Tom Fogg from the same interview - again without permission or fee, but also without credit. Having credited them as source to countless news stories over the years, we were a little miffed, not least because they rarely returned our calls (but we moved on!). Clause 43, a peculiar addition to the bill, enshrines the right of Screen to do this, into law. In an attempt to deal with orphan works, ie works where the author cannot be found, the bill somehow assigns a right for use for any photos or images online where it's not immediately obvious who owns a photo (eg if the photo credit was on the first page of an article, while the article was found on page three).

It's the Alice in Wonderland part of the legislation which contradicts the arguments of the rest of it. Businesses and households risk ruin by losing web access, in order to protect commercial copyright owners. Yet your family holiday photos posted online can be exploited by commercial entities without asking your permission. More can be learned at the Stop 43 website.

ooOoo

The Bill has arrived at the demands of US studios, yet goes further than anything that America, would consider implementing domestically. Given the potential problems, open questions and the drastic last minute changes - one or two hours of Parliamentary time to discus it and no third reading is really insufficient.

Britain is a world leader in the creative industries - across film., TV, music and video games we are remarkably successful, and the sector contributes £112bn or 7% of GDP - almost 4 times more than agriculture - to our economy. Understandably, the support for DEB is built on a desire to protect this sector. Yet this proposed solution to the content sector's problems is built on misguided assumptions about how the web is won.

The Internet was meant to unfetter indie creatives from the stranglehold of studio distribution control, which long forced independent movies out of cinemas and off the shelves at Virgin, yet instead we have new battles - to get on the front page of YouTube or to persuade iTunes to sell our films. The biggest earner for content online is ads, yet Google have most of that market sown up - and we can't even get them to pay tax on the £1.6bn they earned in the UK last year.

Indeed, Britain is largely a web failure, beholden to the US giants (just as with film distribution). Of the top 250 most popular websites in the world, only two are British - the BBC and the Guardian. The BBC sits on healthy license fee income (tho it's budget is illogically threatened with 50% cuts), while the Guardian was the first UK newspaper to go online for free fully, and has stated that its business model, in opposition to Murdoch's, is multifaceted, with the free website supporting other profitable activity. But elsewhere we are tiny fry - the subscription business model of pioneering Friends Reunited, for instance, losing to the free, yet billion dollar turnover, 400 million member Facebook; QXL and Last.fm surrendered to foreign buyers.

The government is dependent on our high tech sector to help us into recovery. Yet while San Francsico looks set to implement free city-wide Wifi and continue to rule the Internet, the UK is just a week from effectively banning free public wifi and handing control over which website is visible and which homes and business have web access, to foreign companies. If the world's leading high tech economy - the US - isn't debating such laws, is it wise that the UK should?

So what can be done? Five steps to removing piracy losses

It's easy to condemn the bill, but there are scarce few alternatives around, so a critique needs to be accompanied with some alternative thinking.

I would firstly echo Paul Carr's excellent description of the Bill at Tech Crunch and suggestion that above all the legislation must not be rushed through before the election, as it is too important. If we get it wrong it could cripple British new media (and creative) businesses for the next decade. Furthermore, badly written legislation could be easily manipulated for censorship and backfire on the media industry as a whole with a public backlash against commercial media. Paul makes other good suggestions at the foot of his article: penalties for copyright owners who file spurious claims, and more protection for businesses/libraries/universities who offer free wi-fi. TechCrunch have also backed the creation of Coadec - the Coallition for the Digital Economy which looks at the Bill from a business perspective (unlike the excellent campaigners the Open Rights Group whose focus is more about civil rights).

But for the more pressing concerns of the content industry - for whom this bill may appear the only hope of salvation at a desperate time - I suggest five things that can be done to tackle piracy losses...

1 - Legitimate alternatives are the best means to cut piracy

Former vice-Chair of Disney Ann Sweeney made it clear in 2006 that 'piracy is a competitor', competing not only on price but on convenience and quality of experience. For many people illegal networks are the only way they can get hold of film and music that is no longer published or not on sale in their local shop (indeed this was why I downloaded that Heroes episode).

So the film industry must provide legitimate alternatives before it starts to seriously penalise consumers for infringement. It's like blocking the water supply and blaming someone for digging a well. And more to the point, as legitimate systems have emerged, piracy has fallen. Last year, following the successful launches of Spotify, Pandora and GrooveShark, music piracy amongst British teenagers was shown to have fallen from 42% to 26% in just 14 months. As Orlowski said at the start of this, over time technological black markets become white.

(Of course the reason why the film industry has yet to collaborate on a decent legitimate movie service is down to the age-old battle between them and the tech world over who controls this space. But that's another blog. The main thing is that the major rights holders should provide commitments and a timetable for making their archives available to buy online for multi-platform use.)

2 - Films need to demonstrate why they are worth paying for

Depressing tho it may be to acknowledge, piracy will never be stoppable by technical or legislative means; those who want to copy will always find a way. Which means a vital part of the strategy is the Cluetrain/Buskers Hat model, whereby the audience feels sufficiently strong connection with the creator that they would never consider not paying for their experience. It's proven to work across the indie sector, and the recent 'thank you' campaign of the ITIPA was a step in the right direction. It is the direct opposite of telling people that you are going to cut off their company or family's web access, which could make them never want to buy something with your logo on it again.

It's like the battle between the sun and the wind to get a man to take of his coat. The wind keeps on blowing and the man clings ever more tightly on. The sun simply shines until the man is so warm, he gladly slips the jacket off. I met a lot of people who watched Avatar on street-bought pirate DVD, yet far more chose to experience it on the big screen.

3 - New business models are unavoidable

The internet has destroyed legacy business models from travel agents to classified ads only to replace them with new ones, and no legislation - or magic piracy blocks - will protect the British creative sector from this reality. I'd say that the internet is a bigger threat to legacy creative businesses than piracy, just by its sheer scale and number of competitors for attention.

The most popular videos watched online are not pirated but user-generated - some 50% of online video according to Screen Finance - and British creative business need to figure out how to work with, as opposed to fight, this activity. Indeed tougher legislation is a distraction from the greater need of supporting British businesses as they adapt to this environment and find new business models that work. At worst legislation could stop new business models before they have a chance to rise to fruition.

Imagine the early 80s - the record majors are moaning about this new thing called sampling. Had there been a technology to disallow it, the media majors would have lobbied governments to implement that, and those countries that did would never have been able to profit from hip-hop and most dance music.

Britain has a world class VJ sector, with acts such as Eclectic Method, AntiVJ, Hexstatic and Coldcut remixing copyrighted content to create completely new 'clip-hop' works gaining a leading international reputation doing so (and regular commissions from the media majors). A hastily prepared or badly implemented Bill could see such new industries stopped in their infancy, with these artist's sites blocked. There are countless possible new models - from micro-pre-sales to alternative exhibition, crowd-funding to mobile aps and punatitive legislation could block innovation while letting other countries to take the lead.

4 - Some piracy will be good publicity

Film publicists send out countless free DVDs and spend a fortune on reviewer screenings (with nibbles and drinks, usually) as well as free public preview screenings, all to help build word of mouth. It might be unpalatable to admit, yet Torrents are far cheaper at doing this, and provided that downloaders talk/tweet/blog/facebook about how great the film/album/TV show is publicly to people likely to pay for content, then no one could deny that a certain proportion of this activity will be beneficial commercially. Indeed pirates have been found to be the highest spending music and DVD buyers, while the most downloaded films of 2008 and 2009 were also the most successful at the box office. According to an IFPI report, frequent pirates were 30% more likely to buy digital music, and 100% more likely to join paid subscription services than non-pirating consumers. Of course they can't buy those services if they are disconnected.

Tho I hate to admit it, ultimately someone with five hundred facebook friends or 2000 twitter followers is probably worth more to the film industry in terms of writing a great review of a film they pirated than I am here reviewing a free screener - as the followers may trust that 'non-industry' person's opinion much more. We're at a very early stage in understanding how peer-marketing works, and it undoubtedly means disruption to the legacy PR industry - but as SuBo's 200 million YouViews proves, it can be worth more than the most expensive ad campaign, even if it's near-impossible for marketing departments to control and predict.

5 - Offset the remaining losses with a broadband license fee

License fees pay for BBC TV, website and radio. They allow composers to get paid for the music you listen to in the background in the pub or at the supermarket. They let authors get paid when you photocopy their magazine articles in public libraries. They give all musicians a royalty whenever someone buys a blank CD or cassette in case someone uses the blank media to copy a copyrighted work. In short, they're ideal when used for generic situations where copyright is exploited, but it is hard to track exact usage.

At its simplest, a 20% tax could be put into a fund operated impartially and distributing to sites / bloggers / filmmakers / musicians etc in the UK who can demonstrate a certain number of views, followers, readers, subscribers, downloads etc. The broadband industry has warned that DEB will cost them some £300m a year to implement - imagine if that £300m was instead distributed to British artists, creatives and new media pioneers (the UK Film Council's new major film fund is just £15m a year).

Or even better, given the likely growth in broadband subscription revenues (and their potential losses from disconnection), take a bigger percentage and distribute revenues proportionate to activity, triggering a windfall for any online British creator. It would be a technical challenge, but not much more radical than the current plans to track the online activity of every British web user to see if they are infringing.

18.3 million UK households have broadband access and over 10 million have 3G phones. A £7.50 per month license fee out of ISP subscriptions would generate £2.6bn a year - more than the current estimated total online piracy losses. Distributed proportionally, if subscribers on average spent 2 hours a day watching/viewing/listening/reading licensed works (and assuming for a moment that 3G and broadband subscribers are different people, and the costs of tracking were negligible), then a 10 minute short film watched by 1,000 UK licensees would earn the filmmaker around £21 (1000*10*[(7.5/60)/60]). A 90 minute documentary watched by 20,000 would earn £3,750 - more than some TV sales. If all of Ink's 500,000 downloads were full views, that would earn the makers £93,000 - almost enough to make a sequel. A 3 minute song would get 0.7p a play (more than current MCPS/PRS rates) and if you spent 15 minutes reading this article you'd have paid me 4 pence. A singer songwriter would need to have 10,000 listens to their work in a week to earn as much as Jobseekers Allowance, while a thousand people spending twenty minutes reading Netribution every day would earn us over £1200 a month. If watching SuBo on YouTube had earned her a penny each time, with the £2 million she'd have earned she could have set up her own record label to launch her career. No wonder some rights owners have not encouraged the inclusion of a license fee in the Digital Economy Bill - it would make them lots of money, but it would also give artists and creatives incredible power.

In conclusion, the need for a different kind of state intervention

Like much of Europe, Britain has a proud tradition of recognising where culture is too important to leave entirely in the hands of the market. From public subsidy for the arts through to the license-fee funded BBC, we all benefit in the UK from state intervention where the competitive forces of the marketplace could see a rush to the bottom.

But by failing to apply the same thinking to the Internet, a space where already the UK is a minority player in our own country, then the Internet - a far more powerful cultural force and entity than TV, radio or newspapers, will be kept forever under the control of foreign media and technology giants.

In the incredibly passionate debates over the Digital Economy Bill between civil liberatarians on one side and a media sector that is really struggling on the other, it is easy to lose sight of the fact that as things are currently heading, neither side will win. Sooner or later two, possibly three, foreign technology giants will control, filter, distribute and, hence, define almost all our culture.

Punitive legislation - whether it works or not - is a distraction from the far more pressing need to support a sector that is in danger of being left behind, while going to war with the Internet and telecoms sector, as this bill appears to do, may only encourage the demise of the UK's creative producers. There are perhaps lessons from the selfish giant in Oscar Wilde's parable - who walled off his garden in order to keep trespassers away, only to realise the garden died if there weren't people in it.

ooOoo

My apologies for a long post. If you want to ensure that the Digital Economy Bill is debated fully, then please contact your MP immediately, by email, fax or tweet - and ask them to follow a full democratic process on something that effects everyone in the UK. Also check out the #DEBill hashtag on Twitter and the Open Rights Group briefings. In a week's time it could be too late.

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